London / New York - Vodafone Group’s payout from a decade-long dance with Verizon Communications over the fate of the companies’ US wireless joint venture was worth the wait.
By holding off until now to sell its 45 percent stake in Verizon Wireless, Vodafone secured $130 billion (R1.3 trillion), adding to more than $15bn in dividend payouts since the venture was formed in 1999.
With Sanford C Bernstein estimating Vodafone’s initial investment at $20bn, the firm is getting as much as $125bn more than that for a sixfold return, according to Bloomberg data.
After years of speculation, Vodafone is selling at an opportune time, according to Macquarie Group. The US has more wireless devices than people, and Verizon Wireless is poised to face stiffer competition from rivals such as Sprint, now backed by Japan’s SoftBank.
Berenberg Bank said that interest rates at near record lows helped Verizon finance a bid that would have been unthinkable previously.
Earlier this year, Verizon was willing to pay about $100bn, according to a person familiar with the deal, who asked not to be identified discussing private deliberations.
“I can only give them my compliments,” said Peter Braendle at Swisscanto Asset Management in Zurich. “I appreciate very much that they were stubborn enough to wait.”
Swisscanto had held Vodafone shares since before the Verizon Wireless venture existed, Braendle said.
In 2004, the last time Vodafone and Verizon publicly got close to a deal, Bear Stearns valued the venture at $56.4bn, making Vodafone’s 45 percent stake worth about $25bn.
Since then, speculation has been rampant about an eventual deal as Verizon reiterated its interest in acquiring full ownership. Meanwhile, the value of Vodafone’s stake ballooned as Verizon Wireless became the biggest provider in the US, with over 100 million subscribers.
Vodafone spokesman Ben Padovan and Verizon spokesman Bob Varettoni declined to comment on the return that Vodafone secured by selling now. In March, Bloomberg News reported that Verizon was eager to take full control of the wireless unit this year after having weighed options, including a full merger.
The British company resisted those advances until mid-year when Verizon said it would pay as much as $125bn in cash, or a mix of cash and stock valued at $130bn, a person familiar with the matter said this week.
“We think of Verizon Wireless as an investment,” Vodafone chief financial officer Andy Halford said on Tuesday. “We have been happy to hold until or unless Verizon made us an offer that exceeded our view of its value to Vodafone.”
By holding onto its stake in Verizon Wireless, Vodafone benefited from an almost quadrupling of revenue in the past decade.
A deal was reached at an ideal time because growth might be challenged as the wireless unit faces tougher competition for subscribers in a saturated market, said Guy Peddy at Macquarie.
“The competitive intensity in the US market is getting more uncertain,” Peddy said. Vodafone had “exited at an opportune time at a very good price”. – Bloomberg